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Ideas From Fred Wilson

13 Jul, 2020 | People Notes, Investing, Startups, Writing

Summary

A trait of the best startups: they start in niche markets but have the option to grow into mainstream markets.

The public markets and VC investing markets are linked, but not the same. VC markets are were innovation happens, so you should invest irrespective of downturns in macro conditions. Some of the best startups have been founded in recessions.

Sources

What you work on is more important than how you work. You can do okay work in the right area and have good results. But great work in the wrong area rarely produces great results (What To Work On).

On Investing

To be valued like a software business (high multiples) you should be able to produce software margins (70% and more). Otherwise you should be valued like another business more similar to what you do (following the poor IPOs of summer 2019 - The Great Reckoning).

The “capital as a moat” experiment seems to have failed. This strategy used by both Uber and WeWork has shown you need more than purely capital to build a sustainable business (2010s).

The startup/tech economy is somewhat immune to macro trends. Many startups and big tech companies were able to grow and expand their businesses during the last financial downturn in 2008 and 2009. Some very important tech companies were even started in those years. The tech/startup economy is driven first and foremost by technical and creative (ie business model) innovation. And that is not impacted by the macro environment (2019 Trends).

All prices can be negotiated, including VC deals (Haggling).

On Startups

A great skill of founders is to turn losses into wins. As a founder, especially early, you’ll get  lot of losses. But you need to be able to reframe them, learn from them and improve from them so you can do better with the next opportunity (Turning Losses into Wins).

Cash flow is important, so the exercise of managing cash is also important. It should be a regular part of the board revue (Cash Management).

Some great startup start in fringe (sideline) markets but know they have a bigger market they can move into when they gain validity. Think Airbnb (house share -> hotels) or YouTube (video share -> TV) (Outschooling).

On Writing

By writing, you also improve your public speaking. When you write, you develop slow and thoughtful answers. Then when someone asks you in an interview you already have your opinion thought-through (Writing and Speaking).

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